North and South Korea were pretty much equal before the mid 1970s

I might have heard it before, but it evidently didn’t keep since I was so surprised to see Dan Drezner’s graphs. They both have pretty flat trajectories in the 50s, then begin to improve in the 60s, but while South Korea continues to accelerate upward the North flatlines and then regresses. How did other communist nations compare? I know Charles Kenny* has argued even now in hindsight it wasn’t an obviously inferior economic system (though certainly brutal to its citizens). Note that he is comparing to the global average rather than first world, since much of the world did terribly under that time period.

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9 Responses to “North and South Korea were pretty much equal before the mid 1970s”

[communism] wasn’t an obviously inferior economic system (though certainly brutal to its citizens)

That is exactly backward. Past the Stalinist mass murders, the system was not in any particular way more brutal in comparison to the West but it was infinitely inferior economically. It was the lack of the milk in groceries, not the political oppression or lack of the “freedom” in the press, that brought down USSR.

And comparing to the global average is stupid. Apples to apples comparison requires that human capital has to be roughly comparable. So I decided to see who is Charles Kenny: “development economist working in Washington”. Ah, okay, that explains it…

It wasn’t just Stalin among communists who engaged in mass murder.
The Soviet Union didn’t collapse because it was poor, things were much worse before Gorbachev and deprivation theory is wrong. North Korea is even poorer now, but it still sticks around. And does human capital explain why the U.K, U.S, Australia, New Zealand & Switzerland grew more slowly 1950-1988 than any eastern european country for which we have data? I’m more inclined to distrust his data than to say his problem is neglecting human capital.

The Soviet Union did collapse because it was poor. It absolutely did. It’s crazy to think otherwise. What’s the alternative – rich happy people revolting because they crave democracy??? That the USSR was poor wasn’t the *only* condition, but it was a key one. Soviet elites (with the help of Western propaganda) lost belief in the sustainability of planned economy. And *that* happened because the USSR was poor (it was very, very obvious that the economy is inefficient). And they (unlike Chinese) failed to resist West’s propaganda that the only alternative is “freedom and democracy”. People in the USSR badly wanted changes *because* they were poor (or, more precisely, knew that they were poor). Under these conditions, all it took is a random guy (Gorby) making a mistake of loosening things a bit – and the system crumbled spontaneously, like a house of cards. N Korea still sticks around only because its top guy(s) happen(ed) to still believe in oppression. That will change soon soon, within a decade I predict. Sooner for Cuba (practically the moment Fidel dies).

And does human capital explain why the U.K, U.S, Australia, New Zealand & Switzerland grew more slowly 1950-1988 than any eastern european country for which we have data?

No, it doesn’t. A simple math of absolute and relative values does. 0.1 –> 0.2 = 100% increase. 5 –> 5.5 = 10% increase. But 0.1 < 0.5. I am not sure about the particular data but I know damn well that Eastern European countries immediately post WWII were not exactly in best shape economically. Before WWII they were also in worse shape – and for *that* difference I am willing to entertain HBD differences (not just IQ). Lastly, a large part of that Warsaw block's economic growth you are speaking of was "stupid". So many tons of steel and concrete (or whatever) produced – what good are they by themselves and not converted into people's sense of well-being? See http://en.wikipedia.org/wiki/Baikal_Amur_Mainline and http://en.wikipedia.org/wiki/Karakum_Canal for just some examples of massive economic activity that did not pay off.

The Soviet Union was poorer in the past without collapsing. So I don’t buy poverty as an explanation. I don’t claim that the citizens were rich or (especially) happy or democratic ideologues. I think the change in elites was more important. The French, Russian and Iranian revolutions didn’t occur because people were especially poor either.

Convergence is indeed important, although it doesn’t occur to the extent we might naively predict. Kenny compares Russia to Mexico, which used to be at about parity. HBD is relevant for Mexico having worse growth, but that raises the question of why it was at parity with Russia in the first place.

I agree that the actual value produced under communism can seem sketchy and it’s difficult for me to evaluate.

It’s worth noting that the Eastern Bloc was running up into Malthusian problems as early as the 1960s (the Soviet Union of course had already hit a Malthusian point once in the 1930s when it regressed its economic system into one incapable of preserving their then-population) and by the 1970s it was plain that communist policies could not sustain anything like 5 billion people.

The USSR avoided a social breakdown and famine in the 1960s because it was able to import food from the USA and Canada at subsidised prices. Subsidised, of course, by efficient capitalist North American industry. Of course, this enabled the USSR to support countries like North Korea (which hit a Malthusian point in the 1990s, despite an obsession with “self-reliance”) which means that what progress North Korea made was also due to the efficiency of American capitalism.

In hundreds of thousands of years, humanity has found ONE way of escaping regular Malthusian famines and one way only: market economies. The Soviet and North Korean economies are not exceptions to this. Apart from a brief period of catch-up in the 1950s (when the population grew to exceed the productive capacity of a planned economy) the USSR never had an extended period without either famine or dependency on capitalist efficiency.

As for the collapse of the Soviet system, there is a huge literature on this, but changes in elite opinion were most significant: notably, that the Soviet economy fell into such a state of malaise by mid-1980s that the leaders had to choose between reform, military decline or a severe decline in living standards. As it happened, they chose reform but delayed reform of the most important factor for a market economy (prices) and this delay combined with a huge inflationary boost from 1986 onwards led to a rare specimen of a supply-side depression: GDP falling at 5-15% per annum for years, while the economy was suffering from massive excess demand.

– as well as relatively greater tolerance of capitalistic agriculture after the death of Stalin. However, when the droughts returned in the 1960s, the leadership was faced with a choice between famine, decollectivisation or depedence on Western economies, they chose the last. In contrast, the Chinese leadership chose decollectivisation and the gradual abandonment of socialism, which proved to be a much more sustainable and dignified way of escaping famine and one that was more compatible with a rising power.

Along with Western capitalism, another factor maintaining Soviet society in the 1970s and 1980s was a counter-Malthusian rise in adult and infant mortality, due to a mix of pollution, alcholism and inadequate healthcare. The Soviet Union also benefited from capitalist developments in birth control, IIRC primarily post-natal rather than pre-natal.